According to, a new startup is founded in Berlin every 20 minutes.[i] Berlin startups are set to independently produce 100,000 jobs by 2020. The city is home to some of today’s startup giants, including Rocket Internet and Zalando, valued at $4 billion and $5.4 billion respectively.[ii] Why the success and exponential growth? Berlin offers a highly beneficial mix of location, living costs, labor, investment sources and community support to attract ambitious entrepreneurs.

First – location, location, location! Berlin is at the very heart of Europe and is the capital of the EU’s economic powerhouse. Germany’s sustained growth has enticed a high amount of skilled workers, considerable investment and has allowed for the development of top technology university programs. It is a short flight or train ride away from most major cities. Incredibly, despite its appeal, Berlin’s living costs have remained among the lowest of any capital in Europe. According to, you would need around 2,940€ ($3,722) in Berlin to maintain the same standard of life that you can have with $5,400 in Boston (assuming you rent in both cities). The expectation of startup salaries for recent graduates can be as low as 800-1000€ per month! This is approximately equal to an annual salary of $13,600.

How can this be possible? In a nutshell, the lack of a working break between Bachelor’s and Master’s degrees means that the majority of late 20-year olds to early 30-year olds have little to no working experience. Since public universities in Germany are virtually free, graduates don’t have much debt and are open to low salaries for the first years of their careers. Additionally, the Euro Crisis that broke in 2011 sent waves of young workers from Spain, Italy, Portugal and elsewhere that can legally work anywhere in the EU. The abundance of young professionals seeking an entry-level position undoubtedly puts downward pressure on wages.

These factors all play to the advantage of the eager entrepreneur. Applications are numerous and payment expectations are low. Candidates are highly educated and speak multiple languages. Rents are also significantly cheaper than other cities (Numero claims that Berlin rent is 56% less than Boston’s).

In terms of capital, Berlin attracted 173€ million in VC funding last year.[iii] Angel investors, private equity firms, family offices and private wealth management funds hover over the Berlin scene looking for potential to invest in.

Finally, the high-concentration of startups offers great support to entrepreneurs. The community can be a source of cross-pollination of talent and connections to investors. There is a constant line-up of conferences, idea competitions and networking events for founders to meet partners and garner best practices.

However, not everything about Berlin is ideal. Its typical investor profile, mentioned above, means that investments are more risk adverse and come with more conditions. Large sums common in San Francisco and Boston are harder, if not impossible, to find. Because of investors’ relative inexperience with online businesses, they often want to be much more involved in the startup’s decision-making – which can be a help or a hindrance.

Furthermore, although the size of the labor pool is attractive, the inexperience of the workforce results in high training costs and turnover. Graduates need to learn the job’s tasks, but also the basics of office conduct and work ethic. In addition, German labor laws are much stricter than those of the U.S. If not careful with the writing of contracts and the documentation of employee performance evaluations, labor can start to represent a fixed cost.

Finally, Berlin is not a business city at its core. It is a musical, art and political hub – a city known for its laidback culture and edgy attitude. It can be difficult to find business savvy recruits and build a productive working environment.

The US startup scene is slowing starting to take notice of Berlin. Just this past June, Google invested $1.3 million in “The Factory” – an incubator for tech startups. Four IPOs are expected to take place this year. While it has its own set of challenges, Berlin eagerly welcomes entrepreneurs and should be considered a real alternative to the increasingly expensive tech hubs found in the US and elsewhere.

read more


The US housing market is a 10.1 trillion dollar market (1) and represents 25% of all US household wealth (2). Given it’s size and importance it’s not surprising we’re seeing a lot of startups try to tackle this market. Venture capital funding will be used as a leading indicator of what’s to come the reason I do this is – 1) for the data, because there’s much more information on fundraising and 2) I assume venture capitalists have a good eye towards the future and their investments are a good indicator of a future large company.

The Catalyst

A rebounding housing market, (3) along with strong showing of Zillow, with 219.6% gains since it’s IPO (4) and it’s 3.5 billion acquisition of Trulia (5) all have given the real estate startups validation and spurred on founders.  Zillow, Trulia and Redfin all were founded around the same time (2005, 2005 and 2004) and finally have emerged nearly a decade later as successful 4 billion, 3.5 billion and half a billion dollar companies. So what does the next decade hold?

Commercial Real Estate

What often is seen with technology is that the consumer market will innovate first and then startups will move more upstream to enterprise. I attribute this to the easier cost of acquisition of consumers and larger diversity including people more willing to be first adopters versus enterprise clients who are usually more conservative. So what Zillow and Trulia did for consumer’s who wanted to easily search for real estate, is happening in the commercial real estate market. In area long controlled by brokers, who haven’t really leveraged technology we’re starting to see innovation creep up in two different areas. The first is that commercial real estate search is being disrupted by companies such as 42Floors, a company that is acts just as Zillow did but for commercial real estate (mostly office spaces). 42Floors was funded by YCombinator, NEA and BVP backed company and raised 12.3MM in January 2013 (6) to disrupt this space. Commercial brokers too have found themselves being forced to leverage technology in their work with a mobile app called Hightower that functioned as mobile way to manage their sales process, recently raising 6.5MM.  (7)

Real Estate Investing

With the market jumping back on real estate, personal investors want to get in on investing in real estate. When the “JOBs act legalized crowding funding” back in 2012, we saw that it became easier to invest individually with an obvious area being real estate. Housing projects are easy to understand where their revenues come from – rentals and are asset backed. This area has quickly been funded by venture capital with Fundrise raised 31MM in May of this year (8), Realty Mogul and Real Crowd have also similarly raised million dollar rounds.

Brokers strike back

Brokers have become aware that if they don’t adapt to the use of technology, the large fees they generate will become a thing of the past. Responding to the threats they face, brokers have started using startups such as Realscout, a company that addresses the imbalance of “real estate agents getting the short end of the stick and are being left behind. Generally speaking, agents are still using outdated search and client management tools”(9) RealScout claims to “put realtors back in the driver’s seat — both by making the search process itself more collaborative and by offering them better tools to engage clients and find new business” (10)

Selling Real Estate

Selling real estate has remained complicated despite the increased options in searching for properties. Two separate startups have recently arisen to solve this problem by letting property owners sell directly online: Allre that was announced at TechCrunch Disrupt 2014 (11) and Keth Rabois of Square fame who recently launched OpenDoor (12) both of these new startups have emphsaized being able to sell online directly without any brokers at all. It makes sense that given the simplicity of information and the rise of ecommerce that more and more things can just be sold directly online.


As technology evolves it continues to changes spaces that were once considered un-modernizable. Real estate information was disrupted nearly a decade ago by easier ways to find information now other aspects of this industry are being innovated upon by a whole new range of startups.



read more

The Canadian Tech Start-Up Scene – A Diamond in the Rough?

The Canadian Tech Start-Up Scene – A Diamond in the Rough?

When one thinks about the tech world, rarely does Canada come to mind. Canada’s tech scene is often ignored by Americans, making it a hidden gem to those in the know.  What else would you call a high-quality pool of talent that is willing to work for a salary that is 50% lower than the average salary offered in San Francisco? (3)

Why does Canada have this enviable pool of talent? 

Canada is home to some of the world’s top computer science and engineering universities. The University of Toronto’s computer science program was ranked top 10th in the world in 2011 (1).  Two notable alumni from this university include Jeffery Skoll (eBay’s first president) and Bill Buxton (principal researcher at Microsoft). The University of Waterloo houses another world-renowned computer engineering program and its alumni founded Research in Motion, the company that developed the Blackberry.

In addition to its high-quality educational institutions, Canada has a simple, flexible immigration system that favours newcomers with a strong background in science and technology. Newcomers are assessed through a points system that ranks applicants based on their language skills, education, adaptability, experience, age, and job offers. If an applicant is able to accumulate at least 67 out of 100 points, he/she may move to and work in Canada. In contrast, to immigrate to the USA, skilled workers must go through a complex and potentially uncertain process while they attempt to attain a “green card”. The first step of the lengthy and costly process is acquiring a temporary H1-B visa for skilled workers. Unfortunately, these visas are limited to an annual allotment of 85,000. This quota typically fills up within several weeks and does not meet industry demand. As a result, many decide to move to Canada instead. (2,5,6)

Unfortunately, the Canadian tech scene is not as thriving as one would expect. One major input is lacking: funding. Up until now, most tech funding has come from the Government of Canada and a few risk-averse investors. This shortage of capital, or capital that comes with too many restrictions, is causing many promising start-ups to run out of funding before being able to take off. One example is Rimon Therapeutics Ltd., a biotech company that spun out of the University of Toronto. Rimon’s founders developed Theramers™: polymers that give medical devices drug-like properties. The most promising of these was the Angiogenic Theramer®, a polymer that induces angiogenesis (the development of new blood vessels) in tissues, which has promising applications for treating patients recovering from heart attacks. Unfortunately, the company ran out of funds before the product reached the market.

In a time when there is a glut of capital in the US markets and a dearth of quality American projects to invest in, why aren’t American VCs flocking to Canada? When asked, a high-profile American VC partner simply shrugged his shoulders and stated that he only focused on domestic start-ups. Canada was off his radar due to unfamiliarity.

While some Canadians, like Elon Musk and Jeffery Skoll, decided migrate to the greener pastures down South, other entrepreneurs have persevered and thrived within the Canadian tech environment. They’re responsible for bringing a host of companies (and their services) to the world: IMAX (a movie theatre format now available in 57 countries), Shopify (an e-commerce platform for online stores), Hootsuite (a social media brand management system), Acxsys (an email money transfer service which used by most major Canadian banks), RedFlagDeals (a bargain hunting website with over 2.2 million unique visitors per month), 500px (an online photography community with over 10 million monthly active users), among many others.

What’s next? 

The Canadian tech-scene appears to be slowly ramping up, albeit at a snail’s pace. A few new VC firms are opening shop in Toronto as are incubator programs, such as the JOLT in the MaRS Center for Innovation (Toronto), Highline Ventures (Vancouver/Toronto), Founder Fuel (Montreal), and the Communitech Hyperdrive (Waterloo)(7). Michael Wekerle, one of Toronto’s most colourful characters in the investment world, recently brought to life Difference Capital Financial and, so far, has invested in 20 tech and media companies. These and other programs have helped some of Toronto’s new up and coming companies, but there’s still a long way to go before Toronto can be called San Francisco North.

A few Canadian up and coming start-ups:

Make sure to look out for General Fusion, a company working on a nuclear fusion power prototype system set to be ready by 2015; Bionym, the creator of Nymi, a wearable wristband that uses a person’s unique cardiac rhythm as an alternative to password authentication; and Recon, whose product can be best described as Google Glass meets ski goggles.










read more

Crowdsourcing funding for consumer loans has been a reasonably successful space with Lending Club, the leading player in the space has lent over $1B since inception in late 2008. Provisions in the recently passed JOBS Act now allow public solicitation of private companies for fund raising which opens the doors for crowdsourcing of equity funding (not just loans). The development begs the question, will there be a viable equity sourcing platform (single or multiple)? To answer this question, let’s start with looking at the source of success for Lending Club.

The business model of Lending Club is one of classic disintermediation through new media. Consumers are getting maximum 1.5% return CD’s while having to pay interest rates of 14% or higher for unsecured consumer loans with banking costs and margins taking up the spread. Lending club allows consumers to directly lend to each other. For this to work, the platform needs to have large numbers of lenders as well as borrowers and needs a way of providing security to the transactors. Because the value to both sides of the platform is large and obvious, building a network is not difficult from that perspective. The key issue to address here is the risk element, especially for the lenders. Lending club does this by obtaining credit scores and other important information from borrowers and rejecting ~90% of applicants only accepting those with higher credit scores. They then sort the borrowers by risk and assign rates while trying to educate borrowers on default rate statistics. Moreover, they mitigate lender’s risk by unbundling loans and forcing diversification of lenders for each loan.

To replicate this model for equity, we need customers on both sides of the platform. An investor can be anyone looking for another asset class to boost yields and/or to diversity their portfolio, while a typical fund-seeker would likely be a company who might otherwise seek equity from founders’ friends or angel/venture capital type investors. The question arises why this company would want to crowd-source equity funding. An answer could be that they are not a VC investment target and they don’t have friends that can fund them or they don’t want to deal with mixing business and friendships. However, another obvious answer that will strike would-be investors is that the company is either a lemon or run by shrewd owners who want to reduce their funding costs by offering unsophisticated investors a lower stake for a risky investment. While it is reasonably easy to diligence a person’s credit-worthiness, it is much harder to ascribe value to fledgling business. Would the platform take on this time and effort intensive diligence obligation? Would investors be able to trust the platform to do this as easily? Furthermore, the amount education required for investors to understand the implications of an equity investment versus debt is high: how will they have liquidity? What are the true range of outcomes for their investment? Finally, it will be difficult to ensure investors are being treated fairly in liquidity events with likely no personal recourse, one can imagine owners paying themselves handsomely while the companies go bankrupt. In short, there’s a reason the US congress has long had standing laws barring such solicitation. It is difficult to disintermediate the function performed by venture capital companies and the complex role played by personal relationships in equity investments. Hence, despite the proliferation of equity funding platforms, I don’t think space is going big anytime soon.

read more

I spent some time over the summer working with an education start-up ( in Berlin. For me, this was a chance to learn about a market that seemed to have received little blessing in terms of digitalization and new technology. It appears mind-blowing that while society undergoes fundamental change and the internet disrupts multiple industries, education has not been transformed by the adoption of information technology. Despite few rare instances, education did not get any cheaper, nor has it made wide-scale use of technology to reach broader audiences. While I believe in the long-term potential of online learning and education, I think there are many misconceptions about the attractiveness of this sector in the near-term.

The often-cited use of Khan Academy in the Los Altos School District is a great demonstration of what ‘could’ be possible. While the content provided through Khan Academy is far from perfect and has its flaws, I can see how some of these new approaches will eventually support teaching. [1] The technology enabled blended delivery model of instruction, combining in-person and online delivery, may have the chance to bring a significantly better education – read: not perfect, but much better than today – to many schools and at no/low cost. The “flip-the-classroom” idea turns the teacher into a facilitator, whereas large parts of the input can happen at home via Khan Academy’s free library of video content and self-paced exercises that allow for a more individual learning experience. Again, this all may not be perfect yet, but it illustrates nicely that technology can have a positive impact.

Considering how few people even in the US actually receive higher education, the impact that the internet can have here is even greater. If 1bn people can access Facebook, they should also be able to receive educational content via online means. And if content (lectures, exercises, tutoring, etc.) is easily deliverable at very low cost as in other content industries, then online education should be an easy play. At least in theory, online education will allow lower-cost and more-widely-accessible education opportunities. [2] Obviously, there are multiple other problems to overcome that include credentialing, how to motivate people to use online education when they don’t even know they need it, who to charge for the content provided, and maybe even how to replicate the context (e.g. some form of campus experience).

I’m very skeptical that stand-alone horizontal online education will be a big thing anytime soon, and if so, rather at the base of the pyramid where it doesn’t replace a system that has been in use for a couple hundred centuries. However, I’m sure that technology will allow students and teachers to make their life easier by allowing for online cooperation, exchange and maybe even higher engagement. It will enable the unbundling of educational content and some form of (re-) aggregation of this unbundled content (e.g. via Learning Management Systems, social networks, etc.). In many ways, both teacher- and student-facing technology will somehow support and improve instruction and delivery processes and do so at a larger scale than it does today.

How to approach the online education space

We recently had Paul Maeder, founder of Highland Capital, in class to discuss whether cleantech is actually a “VC-able” sector. His conclusion: Targeting efficiency, not science projects. What that means is that placing bets on cleantech itself is hard to align with the fund cycles of most VCs. [3] It is simply too long-term and too risky. Instead many VCs now focus on investments that are tangential to the clean-tech space, i.e. IT-enabled ways that allow for energy efficiency, to reduce costs, etc. To me, the same approach may turn out to be the most viable for the education space.

Full-fledged online universities such as the University of Phoenix do not make the counter example as they are indirectly heavily subsidized by government backed loans and do little to revolutionize online education. [4] So even in that sense, these for-profit institutions show similarities to some over-subsidized clean energy cases without a self-sustaining business model. When targeting the education market as an entrepreneur or investor, bureaucratic obstacles will need to be overcome. So instead of planning a frontal attack as many VCs tried in the first phase of cleantech investing, it is most likely that the education market will be disrupted in more incremental steps and new technology may sneak in through the backdoor. [5] So how to tackle this market and who to target?

PrepMe founder Avichal Garg argues in his widely discussed blog post that education startups that focus on delivering higher quality solutions to consumers will not scale to the mainstream, as for the average consumer, education is not a quality but a cost problem. On the contrary, enterprise sales or government sales companies that tap into government revenue streams will scale, but will not have a consumer internet growth curve, so they are equally unsuitable for venture capital. Overall, education startups will grow slowly over many years, which might make investing hard to align with average fund cycles of 10 years. [6]

In a recent talk, Fred Wilson of Union Square Ventures argues that building a sales force and targeting an enterprise, i.e. an institution, is a process that takes a long time – something I experienced over the summer myself. It is also extremely costly and in combination with long sales cycles may scare away many VCs and make it hard for entrepreneurs to succeed. Instead, a bottom-up approach that targets the consumers may ultimately lead to the adoption by institutions. So targeting the teacher or the student in a Dropbox-like model could be a feasible approach. If students and teachers see a real value proposition in the product or service and start using it in their educational setting despite regulations (IT, pedagogical, whatsoever), this could be a way in which technology ultimately enters the institution through the backdoor. [7]

Without a doubt, there will be many opportunities in the online education space in the long-term. But regardless of how the above-mentioned theories will play out, I believe that the addressable market for entrepreneurs and investors in the next years is actually much smaller and harder to crack than the current buzz about disrupting the entire education space suggests. To me, it appears much more likely that we will see some smaller sustainable successes, but very few billion dollar companies – as much as I hope to be wrong with this! I also think that we might see successes entirely outside of the industry that are, however, somewhat tangential and follow a pattern of bottom-up user adoption, and that eventually end up in the education system.

On a day on which Andreessen Horowitz places a $15 Million bet on Udacity, a Stanford spin-off that focuses on bringing free university-level courses to the consumer and that targets corporates to provide educational content, let’s hope it will all happen much quicker. [8]



[1]The Washington Post, “Khan Academy: The hype and the reality,”, July 22, 2012

[2] The Washington Post, “The rise of online education,”, September 14, 2011

[3] Xconomy, “Highland’s Paul Maeder Taking Firm Into Energy Investments—Targeting Efficiency, Not “Science Projects,”, October 15, 2008

[4] New York Post, “Subprime goes to college,”, June 6 2010

[5] Paul Graham, “Frighteningly Ambitious Startup Ideas,”, March 2012

[6] Avichal’s Blog, “Why Education Startups Do Not Succeed,”, October 7, 2011

[7] Ed Startup 101, “Fred Wilson Conversation,”, October 24, 2012

[8] Tech Crunch, “Software Eats Education: With $15 Million In Series B Funding, Andreessen Horowitz Bets On Udacity,”, October 25, 2012


read more